Company Takeovers and Acquisitions in Papua New Guinea Absent the New Takeovers Code

In 2015, Papua New Guinea’s National Parliament passed the following legislation (New Securities Legislation):

1. Securities Commission Act 2015;
2. Capital Markets Act 2015; and
3. Central Depositories Act 2015.

When it finally came into force in 2017, the Securities Commission Act 2015 repealed the following legislation:

1. The Securities Act 1997;
2. The Securities Regulation 1998; and
3. The Takeovers Code 1998.

The legislative intention was that the Capital Markets Act 2015 would replace the Securities Act 1997 and that the Minister for Trade Industry and Commerce would prescribe a new takeovers code (New Takeovers Code) based on the recommendation of the Securities Commission of Papua New Guinea (Securities Commission).

The Securities Commission is still working on the New Takeovers Code and no recommendation has been made to the Minister yet. This means that, currently, takeovers in PNG are largely unregulated notwithstanding the lapse of more than 2 years since the Takeovers Code 1998 was repealed.

The Securities Commission has issued statement to the effect that “takeovers in PNG are hold”(!) until the New Takeovers Code comes into effect (whenever that may be).  It seems that the Securities Commissioner has forgotten that takeovers are a market event and not something that he or anyone else can prevent simply by issuing a press statement. Properly advised however it is arguable that the Securities Commission could issue a ruling under Section 277(4)(b) of the Capital Markets Act 2015 which would have the effect of preventing takeovers in PNG for a period of time. A person who makes a takeover offer must do so in accordance with any ruling made under Section 277(4). (See Capital Markets Act Section 278(1)).

In the absence of the New Takeovers Code, anyone wanting to make a takeover offer for a stock exchange listed public company (for example Oil Search Limited or Kina Securities Limited) or for an unlisted PNG public company will need to think very carefully about how they are going to proceed.

Notwithstanding the absence of a takeovers code, the Securities Commission still has general powers to regulate takeovers pursuant to Part VI of the Capital Markets Act 2015.

In particular, in exercising any of its powers under the Capital Markets Act 2015, the Securities Commission is required to take into account the desirability of ensuring that the acquisition of voting shares or control of companies takes place in an efficient, competitive and informed market. Without limiting the generality of the foregoing, the Securities Commission is required to have regard to the need to ensure:

(a)        that the shareholders and directors of an offeree and the market for the shares that are the subject of the take-over offer:

(i)         are aware of the identity of the acquirer and offeror; and

(ii)        have reasonable time in which to consider a take-over offer; and

(iii)       are supplied with sufficient information necessary to enable them to assess the merits of any take-over offer;

(b)        that, so far as practicable, all shareholders of an offeree have equal opportunities to participate in benefits accruing from the take-over offer, including in the premium payable for control; and

(c)         that fair and equal treatment of all shareholders, in particular, minority shareholders, in relation to the take-over offer, merger or compulsory acquisition would be achieved; and

(d)        in its response to, or making recommendations with respect to any take-over offer, merger or compulsory acquisition, the directors of the offeree and acquirer shall act in good faith to observe the objects, and the manner in which they observe the objects, specified in this subsection, and that minority shareholders are not subject to oppression or disadvantaged by the treatment and conduct of the directors of the offeree or the acquirer. (See Capital Markets Act Section 277 (5)).

Just as importantly, the Securities Commission is required to issue a permanent restraining order  under Section 281(1), if the Commission considers that a take-over, merger, compromise or

acquisition is not in the national interest of Papua New Guinea. (See Capital Markets Act Section 277(6)).

The general powers in Section 277(5) aside however most of the Commission’s specific powers in relation to takeovers are only activated where there is a breach or potential breach of the yet to be  introduced New Takeovers Code. Absent a New Takeovers Code, most of those powers will not apply.

One can only speculate about what the Securities Commission might do if an intended takeover of a major PNG company was announced before the New Takeovers Code comes into operation or before drafting of that Code is even completed. One possibility is that the Securities Commission may prevail upon the Minister to prescribe as the New Takeovers Code all the provisions of the  Takeovers Code 1998 (now repealed) (that is, in effect reintroduce the Takeovers Code 1998). This would at least provide the Securities Commission with a means of regulating the prospective takeover until such time as an entirely new New Takeovers Code is ready.

ABOUT THE AUTHOR

Michael Sullivan is managing partner at Leahy Lewin Lowing Sullivan Lawyers the leading independent law firm in Papua New Guinea, with extensive oil and gas industry experience at all levels. Michael has 12 years’ experience working as general counsel and group secretary for ASX listed oil and gas company Oil Search Limited, is very active in the APAC region for oil and gas related matters. His experience also extends to capital markets, securities regulation, mergers and acquisitions and joint ventures

Michael has worked extensively with the Bank of Papua New Guinea and with a variety of global financial and non-financial institutions including Commonwealth Bank, National Australia Bank, Reserve Bank of Australia, Bank of England, Salomon, JP Morgan, Deutsche, Bank of Japan, BNP and Bank of China in relation to PNG’s Banks and Financial Institutions Act 2000, the Central Banking Act 2000 and the Central Bank (Foreign Exchange & Gold) Regulation.

He has also worked closely with boards of directors, committees of directors and executive management in a variety of public and private companies. As a result Michael has an in depth understanding of board and management structures, corporate governance and risk management.

Michael is admitted to practice as a lawyer in Australia, England & Wales and Papua New Guinea.

He is also a Fellow of the Chartered Institute of Secretaries (London), a Fellow of the Corporate Governance Institute of Australia and a Fellow of the Society of Notaries (Australia & New Zealand).

His areas of expertise are oil & gas, mining, securities, public companies, banking and financing. and aviation. Michael’s work has included the negotiating, drafting and settling of complex documents used in the oil and gas industry including gas agreements with the Independent State of Papua New Guinea, joint venture agreements, unitisation agreements, cost sharing agreements, transportation and lifting agreements, gas sales agreements and farm-in and farm-out documents.

Michael's experience also extends to capital markets, securities regulation, mergers and acquisitions and joint ventures and financing.

For guidance and more information please contact Michael Sullivan by Email; [email protected] or write to Michael C/- Leahy Lewin Lowing Sullivan Lawyers Level 5 MRDC Haus Cnr Champion Parade and Musgrave Street Port Moresby Papua New Guinea.